Variable Annuities and Variable Annuity Fraud

Investment attorneys are seeking investors who purchased variable annuities based on recommendations that were unsuitable and/or contradicted their investment goals. Because of the complicated nature of variable annuity contracts, many investors are uncertain of the risks or negative aspects associated with them.

What are Variable Annuities?

Variable annuities are popular investment vehicles for retirement; essentially, they are insurance contracts that are joined with an investment product. They have insurance-like properties but function as tax-deferred savings vehicles by providing a tax deferral using the insurance policy. The combination of the investment product and insurance contract provides four appealing features: a tax deferral on earnings, the ability to name a beneficiary for the account, the ability to use your life expectancy to receive payments for life and the ability to receive guarantees based on the insurance component.

The rate of return on variable annuities is often higher than fixed annuities and does not have a rate of return that is predetermined. However, payoffs received from annuitizing are very small and expenses associated with a variable annuity can exceed 2 percent annually, which is significantly higher than other investments, such as index funds.

To some investors, variable annuities are preferable to a conventional IRA because they can put as much money into an annuity as they desire. Also unlike conventional IRAs, money placed into an annuity is not tax deductible. However, it is important to note that this type of investment only makes sense if it is affordable for the investor to have their money locked into the investment for at least 10 years.

According to MSN Money, variable annuity fraud is one of the top ten investment scams. The most notable complaint made by investors is the “omission of disclosure about costly surrender charges and steep sales commissions.” Furthermore, according to the North American Securities Administrators Association, these investments are often pitched through investment seminars and are aimed at seniors looking to protect their retirement and loved ones. However, according to regulators, variable annuities are unsuitable for many individuals, especially those that cannot leave their investment tied up in the annuity for at least 10 years. Therefore, brokers who make unsuitable recommendations of variable annuities are in violation of the Suitability Standard.

If you believe you were sold a variable annuity when the investment was clearly unsuitable to your investment goals, or if the entity that sold you the annuity failed to disclose surrender charges and/or commissions, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.